David Cameron performed a U-turn yesterday by accepting that two civil servants, including his official photographer, should be paid from Conservative Party rather than public funds.

Downing Street denied a damage-limitation exercise had been rushed out only minutes after he was told about the Royal Wedding, but the timing ensured that it was ignored by the live television networks as the Royal story dominated their programmes.

Westminster observers suspected Mr Cameron had taken a leaf out of Labour's book by choosing "a good day to bury bad news".

No 10 insiders insisted the decision to announce the retreat yesterday had been agreed in Downing Street as early as 8am yesterday – two and a half hours before Mr Cameron learned of Prince William's engagement.

Mr Cameron decided at the weekend to change the employment status of Andrew Parsons, his personal photographer, and Nicky Woodhouse, a film-maker and website producer.

On his return from his visit to China and South Korea, close allies briefed him that the controversy over the two ex-Tory staff being paid by taxpayers would continue to dog him and Mr Cameron decided to end the damaging row. "He decided that it sent the wrong message to the public at a difficult time," his spokesman said.

Mr Parsons and Ms Woodhouse, who were on £35,000 a year, have left the Civil Service and will not be replaced. They will only photograph and film Mr Cameron on party political occasions.

Some Whitehall officials believe they were sent back to Conservative Campaign Headquarters in an attempt to reduce media interest in eight other former Tory staffers who have joined the Civil Service since May. "The others can be hidden in backroom roles but Andrew Parsons was too visible," a Whitehall source said.

The controversy might have been avoided if Mr Parsons and Ms Woodhouse had been recruited as special advisers rather than civil servants. Other former Tory staffers now in Civil Service roles include Rishi Saha, who runs the No 10 website, and Anna-Maren Ashford, of the Government's behavioural insight team.

Michael Dugher, a Labour MP, said: "If it's wrong to charge taxpayers for Andrew Parsons or Nicky Woodhouse then why are so many other Conservative workers being hired via this sharp practice as so-called civil servants?"